Going into 2017, we are investing in value strategies across all market capitalizations. While we can’t call when the cycle of value beating growth will take place, we know that value has been an underdog for many years now. The value premium exists over the long term—decades—but it is cyclical; some say toward the twilight of a bull market.

While many factors, such as low volatility, may be overpriced, we believe that fundamentals put pure value multiples more in line with historical averages as of the third quarter of 2016. In our study of five historical periods (since 2005), when the 10-year U.S. Treasury rose, the S&P 500 Pure Value Index outperformed the S&P 500 approximately 64% more on a cumulative basis.

The principal risk we see in pure value is the possibility of high downside capture in the event of a correction or an all-out bear market. The initial sting appears to be greater, however, until investors realize the prices of these value stocks are built with a margin of safety.

Investors should also be comfortable with the implied sector concentration of the strategy as it is now. The top three sectors are financials, utilities and consumer discretionary.

Disclosure: At the time of writing, Koss Olinger held a position in RPV.